Next Generation: Millennials – changing how we do business

Your Millennial and your Gen X clients have different expectations. Zakia Campbell of Willis explains how the financial and insurance industry is being disrupted by the coming generation and new apps.

My colleague, Richard Magrann-Wells, recently posted that the next big thing in banking may not be a bank but a wallet app or Google or other new entrants who will move money quicker and easier.

He went on to discuss how disruption and disintermediation of banks is upon us. Just as they have disrupted numerous other industries e.g. music, media, television, cabs and hotels, banking is now in the throes of disintermediation… Apple Pay anyone?

There are tonnes of surveys out about banking disruption, particularly about banking and Millennials. Briefly, they want to bank when they want to, they want to bank digitally/online and they want more advice. Here’s what the surveys uncovered:

An Accenture survey found that 71 per cent of the 4,000 people they surveyed considered their relationship with their bank to be transactional rather than relationship driven. Of the Millennials surveyed by Accenture – key findings included:

94% actively use online banking; 72% use mobile banking;

67% want more seamless omni-channel distribution from their banks across their smartphones, iPad and other online access;

67% want more help managing their financials;

58% want their banks to be more proactive in recommending products;

72% would bank with a new entrant such as Square (50%), PayPal (41%), Apple and Google (29%).

A TD Bank survey also concluded that the majority of Millennials bank on line or via a mobile. Additionally, considering this is the “digital native” generation that uses texting and IM as primary communication modes and looks to social media and the internet for information, it is interesting to note only 22 per cent of their over 2,000 participants look to social media for bank information. The bank itself is still the primary source of information on products, both online (62 per cent) or in-person (54 per cent). Like the Accenture survey, these respondents also want more advice from their banks on savings, budgeting, and other money management tools.

A PwC survey of respondents outside of the North America found Millennials would pay extra for enhanced mobile services, as well as pay extra for relevant third-party offers and storage of key documents in a virtual vault.

To begin with, banks will have to evolve and tailor their service platform for Millennials, who represent a huge demographic — almost as large as the boomer generation. If not, new entrants may be more appealing to this group. (By the way this is true globally — think of the unbanked in emerging markets and how digital payments are altering the payment landscape in those areas.)

So what does this all mean for the risk and insurance manager?

Tech/IT/Network & Cyber Exposures

Technology/IT will continue to be critical to banks’ operations. The look and feel of a website, how interactive it is, how it works across smartphones, iPads, and now Apple Watch, all of this will need to look different for this population. Avoiding network disruptions/outages and any other interruption to the banks’ platform mitigation will be more important if this is the primary banking mode.

Professional Liability Exposures

This is a generation that came of age during the corporate scandals (think Enron), banking crisis and the Great Recession. They are not particularly fond of corporations, which partially explains why they are more open to bank with new entrants into the market than, shall we say, more mature respondents. To the extent banks offer the budget and other spending advice Millennials want, how does that affect the bank’s exposure, especially if it is delivered online (read: in a more simplified manner) rather than face to face. What does this online advice do to ‘know your customer’ rules? What checks and balances will your bank establish to govern this advice delivery? How many of us really read the disclaimers when we sign onto a new app? It is still too soon, based on their age, to determine if they will be as litigious as boomers (although a few are already suing their law schools for misleading them about career expectations), but delivering advice in different ways requires a different way of managing unsuitability risks and other risks related to providing banking advice.

Partnering with Third Parties

What risks has or will your firm take on when partnering with third-party vendors such as telecom companies or other tech companies? These partnerships are more likely to increase, as banks may not want to incur the cost to create the technology needed to facilitate digital banking from scratch. This raises the traditional vendor questions: If you are partnering, who is vetting the vendor? Do they have coverage? If not you may want to consider a vendor liability program.

Brand

This is a generation that expresses its views, its likes, etc. on social media (Yelp for banks?), as per the Pew Research Center survey on Millennials (1,821 participants). The average millennial has 250 Facebook friends vs. 200 for Gen X and 98 for boomers.

Percentage-wise they are the best-educated generation in history. They have grown up with information at their fingertips, and looking for banking information via social media is no exception. You want to make sure their digital experience is a good one or they could broadcast their displeasure… quickly and widely.

The Millennials are now finishing college, starting careers, and are about to buy homes. As noted above they are a large demographic segment and when coupled with their smaller predecessors in Gen X, this is a huge group of customers who want a new way to do business!